US Federal Income Tax: 3.8 % Investment Tax owed if Deductions are greater than AGI?
What is the 3.8 tax on investment income?
The Net Investment Income Tax is enforced by Section 1411 of the Internal Revenue Code. The 3.8% Net Investment Income Tax applies on the lesser of the taxpayer’s net investment income or the amount that exceeds the taxpayer’s modified adjusted gross income (MAGI).
What does the 3.8 surtax apply to?
A flat surtax of 3.8% applies to net investment income of most married couples who have more than $250,000 of adjusted gross income (AGI). For most single filers, the threshold is $200,000. The 3.8% levy applies only to the investment income above the threshold for single/married filers.
Is net investment income tax based on AGI?
The IRS uses the term modified adjusted gross income (MAGI) in various ways. For the purposes of net investment income, your MAGI is your adjusted gross income (AGI) with adjustments for certain foreign deductions or income. If you don’t have foreign income or deductions, your AGI and MAGI may be the same.
What is the threshold for net investment income tax?
Who’s Subject to the Net Investment Income Tax?
| Net Investment Income Tax (NIIT) Thresholds | |
|---|---|
| Your Filing Status | Threshold Amount |
| Married Filing Jointly | $250,000 |
| Married Filing Separately | $125,000 |
| Head of Household (With Qualifying Person) | $200,000 |
How is the NIIT tax calculated?
Calculating NIIT is not just as simple as multiplying your net investment earnings by 3.8%. The IRS gives you a pass. You are charged 3.8% of the lesser of net investment income or the amount by which the MAGI exceeds the income thresholds you must pass to incur NIITs.
Who is exempt from net investment income tax?
Nonresident aliens and entities other than natural persons are not subject to the tax. The thresholds for individuals are: married filing jointly and qualifying surviving spouse, $250,000; married filing separately, $125,000; single and head of household, $200,000. The thresholds are not indexed for inflation.
Does 3.8 Medicare tax apply to IRA distributions?
It’s important to understand that although IRA distributions are excluded from investment income for purposes of calculating the tax, the distributions boost MAGI, which can subsequently subject a taxpayer to the 3.8% Medicare tax.
What is the net investment income tax for 2021?
3.8 percent
A 3.8 percent Net Investment Income Tax (NIIT) applies to individuals, estates, and trusts that have net investment income above applicable threshold amounts.
What is the Medicare surtax for 2021?
0.9 percent
The extra tax was announced as part of the Affordable Care Act and is known as the Additional Medicare Tax. The tax rate for the Additional Medicare Tax is 0.9 percent. That means you’ll pay 2.35 percent if you receive employment wages. Self-employed taxpayers will pay 3.8 percent.
How do I avoid paying the Medicare levy surcharge?
How do I avoid paying the Medicare Levy Surcharge (MLS)? If your income is less than $90,000 (singles) or $180,000 (couples, families and single parents), then you won’t need to pay the MLS at all.
How do I avoid Medicare surtax?
Despite the complexity of this 3.8% surtax, there are two basic ways to “burp” income to reduce or avoid this tax: 1) reduce income (MAGI) below the threshold, or 2) reduce the amount of NII that is subject to the tax.